Computations (separate tax returns with goodwill, downstream inventory sales, and upstream land sale)
On January 3, 2011, Pix Corporation purchased a 90% interest in Sal Corporation at a price $120,000 in excess of book value and fair value. The excess is goodwill. During 2011, Pix sold inventory items to Sal for $100,000, and $15,000 in profit from the sale remained unrealized at year end. Sal sold land to Pix during the year at a gain of $30,000.
ADDITIONAL INFORMATION
1. The companies are an affiliated group for tax purposes.
2. Sal declared and paid dividends of $100,000 in 2011.
3. Pix and Sal file separate income tax returns, and a 34% tax rate is applicable to both companies.
4. Pix uses a correct equity method to account for its investment in Sal.
5. Pretax accounting incomes, excluding Pix’s income from Sal, are as follows (in thousands):
|
Pix |
Sal |
|
|
Sales |
$ 3,815 |
$ 2,000 |
|
Gain on land |
— |
30 |
|
Cost of sales |
(2,200) |
(1,200) |
|
Other expenses |
(1,000) |
(400) |
|
Pretax accounting income |
$ 615 |
$ 430 |
REQUIRED: Calculate the following:
1. Sal’s net income
2. Pix’s income from Sal
3. Pix’s net income